What is the elasticity of demand?

The elasticity of demand refers to the way in which demand changes depending on changes in price.

If the change in the price of a good or service has a small or no effect on the demand for that product, then the product is considered inelastic. If a change in price has an equal or greater change in the demand for the good or service, then the good or service is considered highly elastic. For example, if a cookie maker raises their prices by 10% and they see a decrease in demand of 40%, their product has high elasticity.